Attention potential first-time home buyers.
You can deduct up to $8,000 per year from your taxable income by opening a “First Home Savings Account”. But you will lose the ability to deduct anything for 2025 if you don’t have an account open by December 31. And if you do open an account by then and contribute even just $100 you will be able to carry forward the remaining $7,900 of unused 2025 FHSA “room” to 2026 meaning you could deduct almost $16,000 in 2026. And it’s double these amounts for a couple.
All Canadian adults (except seniors) who expect to be first-time home buyers within the next 15 years should open a First Home Savings Account by December 31 if they have not done so already.
If you or your spouse are already homeowners then this account is not for you. But perhaps you have adult children or adult grandchildren that could benefit from this new account but may not be aware of the details and/or the benefits of opening one by the end of this year.
Opening an account and depositing even $100 this year will allow any unused 2025 contribution room to be carried forward to 2026 and any amount contributed up to the $8,000 maximum is tax deductible for the 2025 tax year. The income tax savings amount to “free money” if a qualifying first home is ultimately purchased.
If you already opened an account in 2023 or 2024 and did not contribute the maximum for 2024, then you should top it up to the maximum by the end of 2025 if you can otherwise you cannot carry forward the unused portion. The maximum allowed in 2025 depends when you opened the account and how much was previously deposited. If you opened the account in 2023 but contributed nothing in 2024 then you would be allowed to contribute up to $16,000 in 2025 per account holder. Check with your bank on the allowed amount and be careful not to over-contribute. Also check with your tax preparer about how to deduct the contributions and the maximum deduction allowed.
Those who have not owned a home at any time in 2025 or in the preceding four calendar years also qualify as “first-time” home buyers for this purpose. Unfortunately, if your spouse does not qualify then neither do you.
The fundamental attraction and benefit of the new FHSA is that it will typically generate income tax savings of about $1,600 to $3,200 annually if the account is maximized at $8,000 per year for five years. Alternatively, the account can be funded over a longer period of up to 15 years. Either way, that’s a total income tax saving of about $8,000 to $16,000, generated by the maximum $40,000 in contributions. In addition, the growth of the money invested in the account is not taxed. These amounts are double in the case of couples, since each partner can have their own FHSA. None of the income tax savings are repayable if a qualifying first home purchase is made within 15 years of first opening the account.
This new account can also be combined with the RRSP Home Buyer’s Plan on the same qualifying home purchase.
There are various rules about exactly who qualifies to open an account and how to make a qualifying home purchase. Seniors over the age of 72 are not eligible to open an FHSA, and any account opened must be closed by the end of the year that the account holder turns 71. Full details are available on the Canada Revenue web site.
Those with lower taxable incomes or who expect to be in a higher bracket in future years should check with their tax preparer. It may be significantly more advantageous to carry forward your allowed tax deductions on contributions to the FHSA to deduct in future years at higher income levels. Tax deductions can even be carried forward beyond the year that a qualifying home purchase is made if that is advantageous. But keep in mind that contribution room that is not used in a year can only be carried forward one year.
The bottom line is that this new FHSA provides substantial income tax savings to potential first-time home buyers. Opening an account and contributing even $100 by December 31 will allow the unused contribution to be carried forward. No contribution room is generated to be carried forward if an account is not opened. And only one-year of contribution ($8000) can be carried forward. If you hope to buy a first home within five years, you should fund the account at $8000 per year to maximise the tax benefits. The higher your income, the more valuable are the allowed tax deductions.
Those for whom this is applicable should talk to their financial institution very soon about opening an account.
For potential first-time home buyers there is NOTHING to lose by opening a First Home Savings Account by December 31 and you can contribute just a few dollars or up to $8000. If you can only contribute a few dollars you will at least create unused contribution room to carry forward. But only a maximum $8000 can be carried forward so you will need to make significant contributions over the years.
This FHSA has existed since 2023. A couple who each opened an account in 2023 and bought a house in 2025 could have deducted $24,000 each from taxable income for a total of $48,000 and income tax savings of as much as about half that or $24,000. This example would apply to a higher income couple in a 50% tax bracket who had the ability to make those large contributions. Even with lower contributions and a lower tax bracket, the opportunity for free money via tax savings should not be ignored if it is applicable to your situation or that of someone else in your family or circle of friends.
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Shawn Allen
InvestorsFriend Inc.
November 2023 (plus edits to August 15, 2025)